Why Power Ministry asked UDAY states to cut establishment costs

State-owned electricity distribution companies (discoms) participating in the Ujwal Discom Assurance Yojana (UDAY), have been cautioned by the Union power ministry to improve operational efficiencies on an urgent basis to achieve the targets set under the scheme.

State-owned electricity distribution companies (discoms) participating in the Ujwal Discom Assurance Yojana (UDAY), have been cautioned by the Union power ministry to improve operational efficiencies on an urgent basis to achieve the targets set under the scheme.

State-owned electricity distribution companies (discoms) participating in the Ujwal Discom Assurance Yojana (UDAY), have been cautioned by the Union power ministry to improve operational efficiencies on an urgent basis to achieve the targets set under the scheme. UDAY states would have to cut their establishment costs to improve their finances and meet their targets of installing smart meters as per the UDAY mandate. Better performing UDAY states would get priority while receiving their share of the Rs 750 crore-fund earmarked for smart meters. In a meeting held recently between power ministry officials and discom representatives, Assam and Bihar informed that their aggregate technical and commercial (AT&C) losses did not improve in FY17 due to increased supply in rural areas where revenue realisations are traditionally low. In Karnataka, the gap between cost of power supply and revenue realised (ACS-ARR gap) has widened because the state had to buy power at higher rates as a portion of its tied generation capacity were hurt by drought.

As reported by FE, only seven states reported meeting their respective FY17 UDAY targets to reduce AT&C losses and only 10 states/UTs managed to narrow the ACS-ARR gap to the earmarked levels. As per the UDAY portal (which does not include data from all states) ACS-ARR gap now stand at Rs 0.33/unit. UDAY mandates the gap to be eliminated by FY19. If the states with higher establishment costs bring down their expenses to the average UDAY level of Rs 0.67/unit, it would lead to savings of Rs 10,000 crore. The minutes of the aforementioned meeting, reviewed by FE, noted that the average establishment cost comprised 13% of the average revenue realisation. A preliminary analysis revealed that discoms which procures power at lower rates had higher establishment costs. Kerala had the highest establishment cost of Rs 1.73/unit. It was followed by Himachal Pradesh, Goa, Punjab and Maharshtra.

UDAY states have been majorly lagging behind in the front of installing smart meters. Only 1.4% of the overall UDAY target of 2.25 crore smart meters has been installed so far, according to the latest data available in the UDAY portal. The deadline for the same is December, 2019. Power Finance Corporation has been asked to take discom heads on a pilot study tour to Mysore, which had installed 20,496 smart meters till December, 2017. Under UDAY, financial losses of the discoms in 24 states have fallen by Rs 14,685 crore, or 28.5%, annually to Rs 36,905 crore in FY17, thanks to savings made through lower interest costs. Governments of 16 states have taken over around Rs 2.32 lakh crore debt of their discoms as per UDAY conditions, resulting in a lowering of the interest rates to 7-8.5% from around 11-12%. The government had earlier said that discoms saved Rs 15,000 crore in interest till FY17.